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Monday, 28 June 2010

Seven months after Dubai shocked the world with a sudden restructuring of one of its flagship companies, the sense of relief is palpable in the city as well as in Abu Dhabi, the better-off neighbour that came to the rescue.

Although the crisis provoked serious tensions between the United Arab Emirates’ two leading centres, Dubai was thankful to be part of an oil-rich federation. Sheikh Mohammad bin Rashed al-Maktoum, the ruler, renamed the just-completed Burj Khalifa, the world’s tallest tower, after the UAE president.

Yet, in spite of the relief – Dubai World looks set to reach a consensual agreement with its creditors – a new kind of anxiety seems to have developed among at least some nationals in the emirate.

Dubai stocks fell to the lowest in more than a week as a meeting of Group of 20 leaders failed to reassure investors about the strength of the global economic recovery and on concern banking earnings may disappoint.

Dubai’s DFM General Index lost 1.2 percent to 1,515.39, the lowest since June 17. Emaar Properties PJSC, the developer of the world’s tallest skyscraper, led the drop and Commercial Bank of Dubai, which has a 4.4 percent weighting in the emirate’s benchmark index, slid to the lowest in more than a year. Oman’s MSM 30 Index declined 0.5 percent.

“The main focus for markets has been the G-20 meeting, as there is a lot of speculation on the banking sector” globally and locally, said Paul Cooper, managing director at Sarasin- Alpen & Partners Ltd. in Dubai, which oversees more than $500 million in the Middle East. Gulf investors “are waiting for the earnings season to kick off” and find out about the banks’ provisioning, he said. Companies will start announcing second- quarter earnings next month.

Maybe it's time for the petrodollar-rich Gulf Cooperation Council states to move on from just paying lip-service to a common market and a single currency to the more practical near-term objective of a broader regional stock exchange.

Calls for a single stock market have been growing louder by the day as volumes plunge and regional exchanges face the risk of falling off international investors' screens. The six-state GCC--with already existing political and economic relations--looks like the best place to start this unification process.

Stock markets in the GCC countries, led by Saudi Arabia, have a combined market capitalization of about $700 billion and recorded a daily average turnover of just about $1.5 billion in the last two years, according to Zawya.com. While the GCC markets don't compete directly in terms of listed stocks, they must still attract broadly the same investors and also themselves invest in expensive technology and infrastructure.

Analysts reckon a merger is unlikely, given the politics involved, but say greater cooperation would make sense as operating-cost efficiencies would improve, and the combined market capitalization would help attract more foreign investors.

Recently, a senior Abu Dhabi Securities Exchange official said that operational consolidation between the region's stock exchanges could be the best answer to the fragmentation issue. The creation of investable products with common themes makes sense. So does the creation of a single central depository and the synchronization of account-handling and collateral-management systems.

Furthermore, linking all the markets would allow investors to trade on all the exchanges freely; resulting in less volatility, deeper markets, and the increased likelihood of attracting foreign and regional institutional investors. Obviously, greater integration can only be achieved gradually but it could also lay the foundations for a derivatives market, which has a better chance of succeeding if done collectively.

The GCC states launched a common market in early 2008, paving the way for the free movement of labor and capital among the six member states and removing barriers to inter-GCC trade, but the real impact of this is yet to be seen. And designs for a single GCC currency may remain on the drawing board for some more time, given that its inspiration--the euro-zone--is itself struggling.

So Arab lawmakers may find integrating the region's stock markets a more achievable goal and one that could also, eventually, play a key role in boosting their common-market agenda, even though that may still be some way off.

Kuwait may be one of the richest countries in the world, but a large swathe of its financial sector is a basket case that would rival the worst of Wall Street.

Encouraged by cheap debt, petrodollars and an insatiable appetite for sometimes bizarre investments, Kuwait’s 100 investment companies swelled their assets to more than $50bn in 2007, but the sector imploded spectacularly after the Lehman Brothers bankruptcy.

In a report published today, Markaz - one of the few well-run investment companies - estimated the scale of the resulting “massive destruction of wealth”:

The Board of DP World remains committed to listing the Company's shares on the London Stock Exchange. However, the Board has decided to postpone the listing process until an acceptable system that supports the dual listing is available.

Given that this will take time, the next practical window of opportunity to seek admission for listing would be following the publication of Audited Financials for the year ending 31st December 2010.

DAE has ordered around 220 planes from the two companies and for several weeks has stopped taking plane deliveries and making payments, according to the newspaper. DAE has so far taken only four of the 118 planes which it ordered from Boeing in 2007, and none of the 100 Airbus planes, Les Echos said.

DAE declined to comment, while an unidentified person at Airbus said only that the orders were still in the order book, Les Echos said.

The Dubai International Financial Centre (DIFC) is on the verge of a strategic shift that its senior management hopes will maintain its lead as the premier financial market in the Gulf region.

“We will be communicating soon the priorities of the organisation as part of the growth strategy for the centre, and how the internal set-up will support it,” said Abdullah al Awar, the DIFC chief executive.

“One thing to note, though, is that the strategic review was based on the fact that the centre needs to build on the competencies and achievements of the past five years. The centre grew in global recognition and, going forward, we need to adjust the priorities to further enhance the growth potential and enable clients to scale up from here and utilise the full structure.”

The United Arab Emirates (UAE) has asked Indian companies to invest in the Gulf region, while lauding the Indian community for being a major contributor to the comprehensive development of the UAE.

UAE Minister of Economy Sultan Al Mansouri met India's new ambassador to the region, Lokesh Mysore Kapanaiah, and discussed investment opportunities in the UAE for Indian companies.

Al Mansouri called on Indian companies to seize opportunities in the UAE in the infrastructure and clean energy sectors and asked businessmen from both regions to exchange visits to develop trade relations.

The Islamic finance industry is catching up with Malaysia in offering a full range of services, supporting growth in an industry with $1 trillion in assets, said the chief executive officer of CIMB Islamic Bank Bhd.

Malaysia has a Shariah-law compliant alternative for every conventional product available because of its early start, Badlisyah Abdul Ghani said in a June 25 interview in Kuala Lumpur. Automobile financing complying with the religion’s ban on interest accounted for 80 percent of new loans last year, said Badlisyah. There’s no industry “handicap” or lack of demand, only the need for appropriate regulations, he said.

“We don’t have much difficulty in introducing new Islamic financial products in Malaysia as there is an effective product- development approval process,” said Badlisyah. CIMB Islamic is a unit of Malaysia’s second-biggest banking group CIMB Holdings Bhd. “In most other markets the process is not that clear, and most of the time you have to go through a cumbersome process of getting clearance from different regulators.”

Property prices have fallen in Bahrain and rental rates of commercial property are also down though residential rates have remained largely stable, according to a report. Manama has not been immune to the recent downturn in the global property market with an oversupply of high-end real estate and prime office space, according to Knight Frank Middle East's Bahrain Property Highlights report.

"There is significant pent-up demand for affordable housing which is not being met and there is already an oversupply of high-end apartments with Bahrain's stock due to increase by 37 per cent over the next few years, with 5,000 units in the development pipeline," the report said.